-Says Global economy recovering, but may be losing momentum
DM Monitoring
WASHINGTON: As the International Monetary Fund presses governments to sign on to a new sovereign debt restructuring framework, it faces a conundrum: How to make such actions more palatable to private investors and avoid months or years of haggling.
The IMF on Thursday said that wider and more standardized use of state-contingent debt instruments (SCDIs), which allow for increased payouts based on improved economic outcomes, could play an important role in sovereign debt restructurings.
SCDIs, including warrants linked to GDP growth, are attractive in theory. However, they have been rarely used in practice because fixed income investors have steeply discounted their value, largely due to non-standard designs, illiquidity, and unpredictable risk profiles, the IMF said in a research note ahead of a G20 leaders summit this weekend.
The instruments could be made more attractive by standardizing their terms and linking their coupons to variables outside the control of the government issuing them, such as commodity prices. SCDIs could also offer debt-to-equity conversions in significant state-owned enterprises and public-private partnership projects that would make them more like private-sector debt restructurings.
The IMF last month forecast a 2020 global contraction of 4.4%, with the global economy expected to rebound to growth of 5.2% in 2021, but said the outlook for many emerging markets had worsened.
Georgieva said data received since that forecast confirmed a continuing recovery, with the United States and other advanced economies reporting stronger-than-expected economic activity in the third quarter.
But she said the most recent data for contact-intensive service industries pointed to a slowing momentum in economies where the pandemic was resurging. While fiscal spending of nearly $12 trillion and monetary policies had averted even worse outcomes, poverty and inequality were increasing, and more support was needed, the IMF said.
New outbreaks and more stringent mobility restrictions, and delays in vaccine development and distribution could reduce growth, increase public debt and worsen economic scarring.
Georgieva urged G20 countries to act swiftly and in a united manner to provide continued support and ensure enough vaccines were available around the world, warning that no recovery could be sustained unless the pandemic was defeated everywhere.
The head of the World Health Organization (WHO) on Monday said G20 leaders had an opportunity to commit financially and politically to the COVAX global facility, set up to provide COVID-19 vaccines to poorer countries.
The United States, under outgoing President Donald Trump, has threatened to pull out of the WHO, and has refused to join the COVAX facility, but experts say his successor, Democrat Joe Biden, could change course after he takes office on Jan. 20.
Georgieva also called on G20 leaders to commit to increased investment in green technologies and increases in carbon prices, estimating that doing so could boost global gross domestic product and create about 12 million jobs over a decade.
Biden has also pledged to rejoin the 2015 Paris climate change agreement that Trump quit.
